Tax season is upon us and it seems as though it is more confusing than ever with new tax laws put in place. If you received an inheritance from a loved one within the last year, it is important to consider that when filing taxes. While there isn’t any federal inheritance tax, it is important to consider New Jersey’s laws on inheritance taxes. Whether you owe taxes on your inheritance depends on the amount of money that you inherited and the relationship that you had with the decedent.
If you fall into Class A, you are the surviving spouse, parent, child, or grandchild of the decedent. Class A beneficiaries are exempt from inheritances taxes in New Jersey. If you are a sibling or child-in-law of the person who has passed, you are a Class C beneficiary. You will not be subject to taxes on the first $25,000. However, depending on how much you did inherit, you could be subject to between 11 and 16 percent tax. If you are a class D beneficiary, meaning that you are a niece, nephew, uncle, aunt, friend, or non-relative, you will be subject to 15 percent on the first $700,000 and 16 percent on anything more than that. If you are a class E beneficiary, which is for charitable institutions, you are exempt from inheritance tax.
It is important to be aware that you are required to pay any inheritance tax within eight months of the date of death. If you fail to do so, you will be subject to a 10 percent annual interest charge on any unpaid taxes.
Please note that even if you don’t have to pay tax on your inheritance, you may still have to file a tax return. Class C, D, and E beneficiaries must file a full tax return.
The planning and administration of an estate requires experienced legal guidance. If you need an effective attorney to assist you with matters of wills, trusts, and estates, or the taxes associated with them, contact Margaret M. Mahon, Esq. LLC today to schedule a consultation.